Now may be the time to boost small cap exposure

Now may be the time for investors to boost their exposure to UK small cap stocks, says Resolution Asset Management's David Clark.

Clark, manager of the £100m UK smaller companies fund, believes that, in 12 to 18 months time, small cap funds will have delivered decent returns and the first half of 2008 will be retrospectively viewed as a great buying opportunity.

Despite the extreme short term volatility that has characterised the market over the past few months, Clark believes small caps will outperform the wider market over the next three years.

Although he says current conditions make short term predictions impossible, he believes share prices will recover to more accurately reflect companies' growth prospects. Volatile conditions, he says, have ‘thrown up some interesting opportunities, as these days it is not unusual to see share price movements of 10, 20 or even 30 per cent in a day'.

Clark, who remains underweight the general retail and building sectors, says he intends to keep faith with the majority of stocks in his portfolio, believing in the underlying fundamental quality of the companies held.

He says: "The market is fraught with difficulty and companies are being crucified for any bad news. Hedge funds have been very quick to short on the back of the most minor wobble and that has made investing all the more difficult. But over the long term prices will recover to accurately reflect past and future growth prospects and I expect small caps to outperform the wider market over the next three years. I strongly believe that now is a good buying opportunity."